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It's rare to see a high-quality company that grows profits strongly and is also very cheap. However, that is what we have today with the FTSE 250's Bank of Georgia (LSE: BGEO).
The share price has soared around 20% in one month and 250% in five years. However, the Georgian bank is trading with a very low price-earnings (P/E) ratio of 3.3.
we have history
So is this FTSE 250 stock an obvious candidate for my portfolio? Possibly, but it's complicated.
You see, I was a shareholder not long ago, but I was concerned about the economic implications of the Georgia election. So I got rid of the stock.
The elections, which took place late last month, were widely seen as a choice between a future within the European Union (EU) or closer ties with Russia.
Georgia's pro-Western opposition, which officially lost, has accused the ruling Georgian Dream party of rigging the vote. Consequently, the country's progress towards EU membership now appears unlikely.
Over the weekend, protesters clashed with police again in the center of the capital, Tbilisi. So the situation is complex and centers on the identity, governance and future of the nation.
This political risk explains why the shares of the company, which in fact forms a Georgian banking duopoly with TBC Bank (another FTSE 250 stock), are valued at such a low price.
Earnings Remain Strong, However
Despite all this uncertainty and the approaching war between Russia and Ukraine, the Georgian economy is proving remarkably resilient.
In the bank's recent third quarter, CEO Archil Gachechiladze said: “We do not expect this period to have any significant impact on the economy..”
In fact, the company reiterated real GDP growth forecasts of 9% in 2024 and 6% by 2025. It said that this growth will be “supported by strong domestic demand, strong capital inflows from the external sector and prudent macroeconomic management“.
For the quarter, the company's consolidated profit rose 42.5% year-on-year to GEL 509.3 million (£145.3 million), with an impressive return on equity of 32.1%. Monthly active retail customers increased 12% to 1.9 million.
The Bank of Georgia has a growing operation in neighboring Armenia, whose economy is also expected to grow rapidly in the future. It acquired Ameriabank for $303 million earlier this year.
The group's loan portfolio increased 63.4%, driven by the consolidation of Ameriabank and 23.6% growth in its core business in Georgia.
Finally, it recently earned the title of 'World's Best Digital Bank 2024' from Global Finance.
So overall, the business is doing very well.
my movement
Despite the CEO's reassuring comments, I have to imagine that the political situation in Georgia is not helping foreign investment or tourism.
Tbilisi is a city I wanted to visit, but I've been reading a recent blog and reddit posts saying that the atmosphere is not good there (perhaps not surprising, given what is going on).
I'm still making noises here. Business and the Georgian economy appear to still be booming, while shares are very cheap and offer an extremely well-covered forward dividend yield of 5.9%.
However, there is substantial political risk, fueling an incredibly volatile share price. So far this year, it has experienced multiple ups and downs ranging between 20% and 30%.
Maybe my hesitation is all I need to know. After all, there are other cheap stocks in which I have greater conviction. Weighing things up, I think I'd better buy them.
